Pragmatic Capitalism

Practical Views on Money, Finance & Life

Which smaller details of Trump’s economics which will raise inequality.

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During a couple of long dog walks after the election I worked out for myself how I think Trump’s economic plans will impact the economy (and my personal economy). These are largely similar, and actually derivative of your views which you wrote some time back. I have tried to estimate what will actually get through the congress, given that it’s filled with some very strong anti-deficit fiscal hawks. Lower taxes on the upper middle and upper classes, and a repeal of the estate tax, will be pretty easy. It’s part of the long term established ideology of the GOP that lower taxes on the upper classes stimulate more growth than they cost (even if the data is generally otherwise). In the short run this has to increase the deficit, and in the long run only unsupported rosy scenarios support enough growth to offset the tax cuts (because much of it will be saved in safe instruments or spent overseas). Clearly if growth is smaller than the tax cuts averaged over time then inequality increases.
To pay for infrastructure Trump has proposed large tax credits to private builders. In my analysis this should flow largely to higher income, economically expanding regions, where the public can anticipate supporting the discounted actual cost of the post-tax-credit development + the developers profit. We have already been doing this in CO with adding toll lanes to busy highways (the Denver-Boulder Turnpike now has on demand priced lanes, all financed by a Spanish firm under a multi decade contract for a share of revenues). The same will hold true for schools, high-speed rail, light-rail, hospitals, …. The already dynamic economies will be able to justify the longer term discounted cost of subsidized private development of infrastructure due to expanding populations, economic activity, and real estate values. This is unlikely to work in Reading PA or similar with declining populations, economic activity, and non-expanding real estate values. In my view the expansion will largely then flow to the “urban elites” subsidized to the extent that growth is lower than the cost, by the less prosperous rural regions where private infrastructure is unlikely to be profitable.

I suspect any deal Trump can make with Ryan to spend on infrastructure will include lower corporate income tax rates (but flatter) and no increase and possibly a decrease in capital gains rates. All of these combined are likely good for equity values. Ryan will likely get reductions in Federal spending on programs for the poor to offset anticipated deficit increases from the infrastructure tax credits.

I expect the trade changes to be milder than Trump has claimed, and they won’t apply to places which produce important goods for the top 5 or 10%, like Germany, Italy, Japan, Switzerland, …. If most of your spending is domestic services and real estate trade changes should be a small impact. If you need Wall Mart prices to stay afloat there could be an impact with China. If you vacation in Mexico and the Caribbean it may well be cheaper.

And then there is the estate tax. I’m not rich, but the HRC changes would have impacted my kids, except I have planned to donate everything above the no-tax limit. This is what most upper-middle class people who reach the current estate tax limit tend to do (which is why they claim so few people pay it when if you look at the top few% of middle age and older people there should be far more).

To me it appears that everything in the actual implementation of the Trump plan that could pass congress is very good for the upper-middle class, and great for the upper class. It’s good for the already dynamic urban centers. I just don’t see how it proportionally benefits the group who are considered Trump’s base more than it benefits the people they hate, the “urban elites”.

Is there anything in Trump’s plan you think will really benefit the non-urban more working class demographic that many argue was Trump’s major base of support?


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Posted by John Daschbach
Posted on 11/11/2016 12:49 AM
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Trump won not because of “racist whites” but because of minorities (blacks, Asians, Hispanics), who either abstained from voting or switched over to Trump. Exit polls have shown this to be true.

More and more working class peoples of all races and backgrounds have realized that wealth creation is not a zero sum game, and that making others poorer does not make oneself richer. The leftists are still trying to suppress this point, but Trump’s victory shows that the tipping point has been reached.

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Posted by FUЯ ION
Answered on 11/11/2016 10:57 AM
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    That’s a nice analysis. I think you pretty much nailed it. Trump’s policies are mostly going to benefit the upper middle class and the upper class. We know trickle down actually does what it says. It ‘trickles” down. And by trickle, I mean a slow drip in a river that mostly accumulates to the top and just barely drips down to the lower levels.

    That’s exactly what Trumponomics will do. Hell, Trump might even be a billionaire when his 4 years are over. :-)

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    Cullen Roche Posted by Cullen Roche
    Answered on 11/11/2016 11:29 AM
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      Trump will have to do direct intervention into the ghettos and rurals, not rely on trickle down economics.

      Then again, with a 15% corporate tax rate, setting up shop in the poor areas is gonna be mighty attractive to firms all over the world. It may provide the desparately needed jobs (and job training). It works for Ireland.

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      Posted by MachineGhost
      Answered on 11/11/2016 10:56 PM
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